Fiscal Cliff Could Hit Auto Industry Particularly Hard

The automotive sector could be one of the economy’s worst-hit victims if the fiscal cliff is not resolved by the end of 2012, according to research firm IBISWorld.

The Santa Monica, Calif.-based firm said cars are highly discretionary and expensive purchases that require significant maintenance, so a reduction in disposable income would force consumers to delay new purchases over the next couple of years.

Industries operating in the automotive sector that are particularly sensitive to changes in personal income include car dealerships, gas stations and car service providers such as car wash and auto detailers, IBISWorld said.

“During the five years to 2012, this sector has endured an aggregate 3.1% average annual decline in revenue due to the luckless combination of falling disposable incomes and increasing prices,” the research firm said.

In 2008, sector revenue plunged 7.1% when the world price of crude oil shot up more than 35.0%, according to IBISWorld. Although in 2009 the price of oil came back down, sector revenue continued to plummet as per capita disposable income dropped 3.6%.

As a result, the automotive sector’s high sensitivity to consumers’ purchasing power ultimately resulted in high revenue volatility during the past five years.

“Based on the sector’s recent performance, IBISWorld expects it to be one of the US economy’s worst-hit victims if the fiscal cliff is not resolved by the end of 2012. This, on top of already-high and volatile gas prices, could severely hurt the auto sector during the five years to 2017,” the firm said.